Here’s how the crazy ConstitutionDAO dreamers could have BEATEN Ken Griffin at his own game.

ConstitutionDAO was a beautiful experiment in creating a DAO for a single purpose — to buy a first edition of the US Constitution at Sotheby’s auction.

17,000 people came together and raised $46 million to try and make the purchase. The group broke the record for the most money crowdfunded in less than 72 hours.

For those new to DAOs, DAO stands for a Decentralised Autonomous Organisation, and it’s essentially a group of people gathered together for a common cause built around a transparent smart contract they collectively control.

In an M. Night Shyamalan worthy plot twist, Ken Griffin, the founder of Citadel Securities, a company at the heart of the anger over Meme fueled stocks, ended up being the winning bidder.

One of the flaws was that the treasury value of the DAO was entirely transparent, and that allowed any other bidder to know the max bid of the DAO and outbid them. There was information asymmetry.

Think about yourself at an auction, not knowing what anyone else is likely to go up to, the psychological pressure will take its toll and will almost certainly impact your decisions. You have no idea whether you’re close to winning or not.

If you’re Ken Griffin, you knew what your competition was willing to bid up to. We don’t know what happened between then and the auction, but Ken could have built a consortium, mobilised funds. He knew exactly what he was up against.

What type of construction would allow such a DAO to maintain a private treasury and participate in an auction without an information disadvantage, such that it can get the lowest price?

This is a really challenging problem right now because, by their very nature, blockchains are entirely transparent. The balance of the ConstitutionDAO contract, and by extension, the amount available to bid, was completely visible by all.

Various ideas have been put forward, but no complete answer to the problem. So here, for the first time, is how ConstitutionDAO could have won the auction using Obscuro.

Obscuro is a Layer 2 privacy solution built on top of Ethereum. It enables any Ethereum contract to operate at a larger scale, lower gas, and crucially, with full privacy. It leverages a technology called Trusted Execution Environments, it’s the technology that secures most of your devices. TEEs provide complete privacy, even from the operators of the host machines.

What might the ConstitutionDAO solution look like using Obscuro?

You would create a contract that holds the funds on Obscuro. This would be like any other Ethereum contract that can hold a balance. Here’s where things get interesting. All inflows to the contract, outflows from the contract and of course, the total balance, would be known to nobody.

Everything would be obscured and processed inside secure TEEs and stored as encrypted rollups on Ethereum.

Members of the DAO would commit funds into the contract using encrypted transactions, indistinguishable from other transactions happening on the network. All Griffin would see are the billions of dollars locked up in Obscuro… a massive war-chest… but he would have no way of knowing how much was actually committed to this specific auction.

The contract would have a function; let’s call it doYouBid(), which the auction house (or the party executing the auction) would need to be explicitly authorised at the outset to call using their key only in a predefined interval.

During the auction, the auctioneer would call this function at each bidding stage, passing in the next bid amount, e.g. doYouBid($13,000,000), doYouBid($13,500,000), etc. The function would only respond yes to the limit of its available funds (or some preconfigured limit that is also hidden).

After the auction, the auction house can claim the funds from the contract.The other bidders cannot know the maximum amount locked in the DAO and thus have no advantage.

ConstitutionDAO could have won the auction using Obscuro.

Over time, these types of smart auction contracts could begin to learn bidding strategies and start optimising their bid increments and time delays to throw off other bidders, making them indistinguishable from normal remote bidders. All while keeping models and modelling data confidential within Obscuro.

Some other types of auction are also currently impossible to implement on blockchains.

In a sealed bid auction, bidders privately submit their one best offer in writing, in a sealed envelope. The bids are opened privately by the auctioneer and seller. They do not reveal the bids to any of the participants.

Keeping the bids private helps ensure that if all bids are too low for any of them to be accepted by the seller, the property will not become stigmatised by having a perceived low value in the marketplace. It also ensures that the auctioneer cannot collude and reveal a competing bid to another bidder privately or front-run a bidder and outbid them.

If you’re interested in learning more about Obscuro, check out our introductory blog post here or dive into our whitepaper. Chat with us on Discord (be sure to check the pinned messages in the contributions channel!) and Telegram, and follow us on Twitter.